How Family Dynamics Affects Wealth Transfer

Matthew Wesley has spent the last twenty-eight years working with wealthy families as an estate planning attorney and family advisor, facilitator and catalyst for improved communication and successful wealth transfer.

LR: How did you become an expert in shifting family cultural dynamics?

MW: I have had two careers – first as a minister and then as a lawyer. My first career sensitized me to how hard it is to get communities of people with different personalities and agendas to successfully work together. Difficult, but not impossible, if you understand group dynamics and methods of community building. Leading is largely a process of facilitation and the dynamics of religious communities (and in fact all groups) have elements similar to how most families function. When I became a lawyer, I saw the same dynamics in law firms: getting competent and often headstrong people to create a common culture required real grit and determination. Some law firms excel at this. Many don’t. Those that do are wildly successful. Those that don’t sputter. The techniques of community building in both community and professional domains are complex, but forging culture is key to successful team building and organizational development. Or in this case, shifting family culture.

As a lawyer, I became deeply aware that the central fact in families of wealth are structures created by lawyers. They create trusts, various entities and foundations that are often designed to last for generations. Families must live with these structures and the advisors who accompany them. In many families, these structures prove to be damaging to individuals in the family and to the family as a whole. It would be ideal if lawyers were more sensitive to these issues, but most are not. Lawyers are experts providing solutions to a very narrow set of technical problems – usually related to tax or governance issues. The only way for families to succeed in the face of these structures is to develop a robust and resilient family culture that can serve as a counterweight to the powerful forces of the structures and the advisory network.

What I learned in ministry is that for a group to work effectively, they must have a grounded commitment to what I refer to as “a deep moral purpose.” This means that they develop a commitment to the each other and to the world that will creatively withstand ambiguity and uncertainty. This is what keeps families together, instead of running for an exit at the first sign of difficulty.

Shifting family culture moves a family from the singular focus of independence to one of both independence and interdependence. There are various ways to move cultures in this direction. It is this work that was the focus of my career in ministry and is now the focus of my wholly secular work with families. It is deeply human work.

LR: What types of families do you work with and how do you help them?

MW: I work with many different types of families – no two families are the same. Most often the families I work with are in a state of transition. They may be passing on wealth to the next generation, they may have a charitable foundation that isn’t working as well as it could or they may be transitioning a business to the rising generation. All of these present significant challenges or complex problems that can spark a lot of familial anxiety. Anxious families are often brittle, they display the normal responses to anxiety – fight, flight, flock, freeze and fix. (Flocking is seeking emotional support and building coalitions and fixing is that knee-jerk move to action that often makes problems worse).

My model for working with families is to “walk beside – leave behind.” This means that I am with a family for a time, helping first to bring clarity to a situation, calm the system down, and then work to build skills and competencies that enable the family to develop to their capacity. Typically, this is a 3-5 year process. The problem I am called in to solve is almost never the real problem. Therefore, the goal is not to solve a problem, but to equip the family so that it can solve today’s issue and also ensure that it stands ready to face problems of tomorrow.

If I can leave a family with the skills to navigate the inevitable issues that will arise, I will have done my work well. This takes time and effort on the part of the family – and not all families are cut out for it – but for those that are, it is emotionally and financially rewarding. It is not about singing kumbaya – the process walks the harder edges of preserving and growing wealth and forging an approach that satisfies all stakeholders. Just as corporations have found that culture is critical to high performance, in families, culture has tangible ROI in the form of long-term financial viability and, in rare cases, economic growth over generations. Preserving and growing wealth is not simply a matter of getting the right legal and succession structures, but has everything to do with the skills and competencies of the people in the system. It is not as much about planning as it is about preparation. I find particularly that patriarchs and matriarchs may resist some of these changes at the outset, but over time they gain great peace in knowing that their family will be just fine without them because of the skills they have gained.

LR: How is a family like a tribe?

MW: Families are tribal. Too often family consultants treat their client families as though they are corporations – they instruct them to create mission statements, do values clarification exercises and generate governance structures that are borrowed mostly from corporate contexts. In my experience, virtually none of this works. It is a waste of time and, worse, it causes families to grow cynical when they see it doesn’t work.

Families are based on marriages, child-rearing, divorces, deaths, anniversaries, common history together and so on. They are kinship systems. From anthropologists we know that in kinship systems, stories, rituals, wise elders, councils and gatherings are critical to the health of the tribe. Families create meaning for themselves out of these sorts of experiences.

In the United States, families of wealth tend to follow three paths in the generations after the creation of the wealth: separation, preservation and growth. Separation is the cultural norm. Individuals split off from their families and go their separate ways. The problem in wealthy families is that legal structures designed to avoid taxes force the family to move in a countercultural direction – preservation of wealth requires a kind of cooperation that an ordinary modern family simply doesn’t have to deal with. The paths of Preservation and Growth both require that a family of wealth act like a tribe – it must gain a sense of tribal cohesion for it to be successful. Without that sense of tribal connection, wealth lasts only for a generation or two. With it, wealth can endure and even grow for many generations.

Reaching 100 years as a family is how we define greatness. Families that make it that long (for more than three generations) are doing so based on cultural work – the family has learned to function as tribe. The path of Growth absolutely requires a working culture. The path of Preservation, if it is to endure through a second or third generation, must learn this as well. The costs of cultural failure are high – entitlement, family strife and wasted human and economic potential. Creating tribal identity and becoming an effective tribe helps to minimize, control or even eliminate these consequences.

LR: Here at Paragon Road we stress to clients the importance of creating a positive and open family narrative. What’s your best tip(s) for building a positive family narrative?

MW: Let me begin by saying that every family faces challenges. While I have seen my share of “dysfunctional” families (fraught with chemical dependency and real abuse), my sense is that the vast majority of families are simply dealing with very complex problems as best they can. They are not so much “dysfunctional” as they are socially complex. Social complexity arises from bringing people who have very different perspectives, personalities and agendas together to solve tough problems when outcomes are inherently uncertain. This first step of reframing “dysfunction” as complexity is helpful for many families – they move from a story of themselves as “broken” or “unhealthy” to one in which they are a group of passionate, well-meaning people dealing with difficult problems who need to work together to meet their common challenges. This is what a good story does – it reframes and thus changes the narrative from one of brokenness to one of empowerment.

The best family stories I know are the ones that see the family – and its individual members – in some form of what Joseph Campbell called the “hero’s journey.” In the hero’s journey, a likable and relatable hero is called from his or her normal existence to face a daunting challenge. The hero heeds the call and moves through circumstances of real difficulty and even darkness to arrive at a place of great reward. The hero then returns to the ordinary world transformed and ready to help others. This is the classic plot of every successful story whether it be a drama or comedy (And doesn’t life consist of a little bit of both?). If everyone in the family is someone that faces challenges and overcomes them – with the help and support of one another – some key messages are instilled. People see that adversity is normal, that wealth will not protect them from the normal trials of being human and that indeed the best parts of oneself have little to do with wealth. Rather, wealth helps to free a person to find and express their potential not substitute for it. They also understand that while wealth can be given, making meaning— found by building competence and connection. They cannot go at it alone. There are companions on the journey, whether these are family members, friends or trusted advisors. They learn that triumph in life involves some degree of service to the world – creating something of value for others as well as for oneself.

In the end, the truly great story narratives of wealth are initially forged in the creation of that wealth but also in subsequent generations and in dealing with the brute fact of wealth in heroic ways. Every family that endures has within it a family of champions who are committed to remaining together as a family (and accessing the skills to pull it off). Nathan Rothschild said, “It takes a great deal of wit to create a great fortune, and twice as much to keep it.” I have found that to be true in the families I advise.

LR: How can people overcome a bad family dynamic in relationship to money or passing on their businesses?

MW: I mentioned before that there are three basic pathways: separation, preservation and growth. In some families, the natural move is toward separation. When a family is artificially held together by businesses or trusts, often the question is how to help that family separate without doing great inter-personal and economic damage. Many people think that I want to keep families together. Although that is often the ideal outcome, it is not always practical or possible. In those cases, I try to help the family find ways to preserve value as they find a path toward ending well.

Families can opt for another path altogether—toward Preservation or Growth. In cases of family business, this is often a culture problem. For example, in G1 to G2 transitions, the business and the family constitute two different systems. The business is based on a culture of performance whereas the family is a culture of inclusion. Each has its own operating software. When it comes time to transition, these cultures collide. The family must navigate this crash of cultures. For example, in the business culture, promotion and salary are based on merit. The family culture would say something different—perhaps that family members should be given positions for which they are not qualified for or for which they are paid more than markets would pay.

The role of an outside consultant is to tease these cultures apart – to make the family the family and the business the business. This involves role negotiation, principles of engagement, creating different ways of thinking and educating family members to the varying roles of governance, management, ownership and family membership. It also involves forging common purpose in ways that meet the varying needs of family members.

With families of wealth, the challenges are different. Here the modeling behavior of the parents is critical. So too is the management of their anxieties about their children and how they use money to “soothe and smooth” the ordinary challenges their children face. To mature and grow, people need to face challenges and overcome them. This builds character and skill sets necessary to “wear wealth well.” To be successful, children in wealthy families must learn not only how money works, but also how wealth works. They must learn how to work with their siblings and cousins – even if they don’t particularly like them — and understand the world of business and how to be wise philanthropists.

This is a tall order. It is not driven by the kinds of middle-class values that create wealth. It requires a different set of skills – skills of self-awareness, self-discipline, stewardship and collaboration. Children raised in wealth are often not well-served by the values that created wealth. In one family I worked with, it was suggested by a previous financial advisor that my client would want her daughter to learn how to work hard and apply herself in a career. The wise matriarch said, “No, you don’t understand, I want my daughter to become an excellent heiress.”

She went on to say that this meant that her daughter would steward her wealth wisely and humbly, would be committed to making the world a better place, would carry the family reputation with dignity and care as a civic leader, and would raise her children to be worthy stewards as well. If she wanted to work for her fulfillment, then that was good, but that it wasn’t necessary since the primary purpose of a career is to earn a living and that was not an issue for her. She noted that to pretend otherwise was to deny the reality of the situation and leave her daughter unprepared for the life she would lead. This was a woman who had made peace with her wealth and had recognized that the game had fundamentally and radically changed for her daughter.

LR: What would you say the biggest mistake you see in wealthy families?

MW: In families new to wealth — first generation families — there is the belief that planning is the same as preparation. There are many advisors that will help a family plan, but all too often there is a massive gap between planning and execution. I call this gap “The Chasm.” As my good friend, Tom Rogerson, says, “Often there is great care put into preparing the money for the family, but virtually no work put into preparing the family for the money.” Without preparation, the money can become a powerfully destructive force. Preparing the family is partially about preparing individuals in the family to understand both how money works and how wealth works (and these are two distinct things). It is also about creating family cohesion so that the family can work together. Preparation is about creating a strong, vibrant family culture. Failure to build culture summons failure. Building a family culture sets the table for success.